A test of the Environmental Kuznets Curve in the Nordic countries

Abstract: Climate change arising from global warming is an important issue for the global community to resolve for the prospect of a sustainable future. It is therefore crucial to gain understanding in how nations can contain the progression of global warming created by emissions of greenhouse gases. The Environmental Kuznets Curve (EKC) theory suggests that decoupling between CO2 emissions and economic growth is possible when a certain level of economic development is reached. This study uses the EKC theory to investigate the relationship between CO2 per capita and GDP per capita for the countries of Denmark, Finland, Norway, and Sweden from 1960 to 2021. These countries are considered suitable candidates as all satisfy the requirements for showing a clear decoupling in accordance with the EKC theory. This study uses a cubic parametric regression analysis model to investigate the EKC hypothesis. It finds suggestive evidence of an inverted U-shape relationship between CO2 per capita and GDP per capita for the country of Sweden, implying that the EKC theory holds. This relationship cannot be found in the results on the analysis of Danish, Finnish, and Norwegian data. The extended analysis proposes that the sectorial composition of emissions explains the differences observed between the countries. The study also considers the possibility of a future EKC relationship for Denmark and Finland. Norwegian data does not provide any suggestive evidence of a future existence of an EKC. The study concludes that decoupling is country specific.